The effect of a poorly communicated succession plan to employees often is a decline in morale and an uptick in churn, both of which are liabilities for the company as a whole. Yet a lot of owners are surprised by this completely foreseeable outcome. They forget that what seems like a positive for them — exiting the business they built — could be seen as a negative for those around them. Here’s how to make sure everyone involved has a positive experience.
Most people don’t like change, especially when it could affect their livelihood. The moment your employees find out you’re planning to exit your business, their brains will fill in any blanks with scary scenarios. That’s why it’s so essential for you to take the time to not just have a business exit strategy but come up with a plan for letting your employees know about it.
Unfortunately, the majority of business owners forget to include this important step. Here’s what ends up happening: They get an offer on their business and suddenly find themselves hurtling toward an exit at alarming speeds. Because the process is very reactive, many business owners also don’t have time to create an exit plan strategy for their business. As such, when they finally feel it’s time to tell the whole team, their employees understandably begin to panic.
Even if some employees suspected an exit was coming, they still don’t have the full story. They don’t understand what it means in terms of their jobs, their finances, and their stability in the long term. Imagine the stress and fear of not knowing where your next paycheck is coming from. Then, multiply that feeling times 10, 50, or 1,000 — however many employees you have. What you’re left with is large-scale uncertainty across your once-stable business.
The natural effect of poorly communicating succession planning to employees is a decline in morale and an uptick in churn, both of which are liabilities for the company as a whole. Yet a lot of owners are surprised by this completely foreseeable outcome. They forget that what seems like a positive for them — exiting the business they built — could be seen as a negative for those around them.
Empathy is key here. While you might be more than ready to transition out, it’s important to remember that employees at all levels are often left in a difficult position after a sale, especially when the sale is to a “strategic” buyer or private equity firm. Taking this risk seriously will help you understand how to communicate with them in a way that connects with their interests, not just yours.
What owners should do instead is acknowledge these potential concerns upfront and talk about what the deal means for their employees in concrete terms. Focus on being diligent and empathetic from the beginning of the exit process to the end. Doing so is the only way to make “The Exit Talk” productive and not panic-inducing.
Put simply, you need to put yourself in your team members’ shoes. Full disclosure: This requires a fair amount of work on your part before you pitch your exit. However, your homework will pay off.
For example, let’s say you’re getting ready to talk to your senior executive leaders about your exit strategy. You can’t just go into the meeting and say, “Here’s exactly what we’re going to do, and it’s going to be great. I’ll make all this money. You’ll probably make money, too. And I’ll sail off into the sunset.” From your senior leaders’ viewpoints, a pitch like this doesn’t give them any practical insights into their futures. What if they’ve been in the same role for over 10 years? What if this was the job that put their kids through college? Or, what if they thought they would work for you until they retire? What if they actually want a chance to buy the business themselves? They’ll have some serious questions and concerns, and you’ll need to be well-prepared to address them satisfactorily. If you don’t, you could wind up damaging your culture and financial health.
How, then, can you prepare for the hard conversations that will inevitably occur as part of your exit plan strategy for your business? The following tips will streamline the process and improve the way your team experiences your big decision.
1. Aim to have minimal ‘I don’t know’ moments by preparing a plan with some details
Your employees should feel like they’re stakeholders in your company’s exit. To do that, you should be ready to bring answers to the table so they get the information they deserve. You’ll want to try to talk through the difficult “I don’t know” moments with empathy and understanding for your employees’ concerns.
Ideally, you will have a clear sense of timeline, intentions for employee treatment after the transition, a sense of the role you’ll play long-term, and initial ideas about the potential upside for key employees. If this sounds like a lot of work to do before even getting into a sale process, that’s because it is. An experienced advisor can be helpful here, especially if you’re looking to make a sale to employees.
Of course, you will always be asked something you never even thought of. In that case, a simple “I don’t know, but I want to. I’ll find out and let you know. Can I ask for your input and assistance if needed?” will suffice. Having a clear procedure in place to acknowledge, evaluate, and respond to unexpected questions is valuable and helps your employees feel confident in your decisions.
What you never want to say is that you don’t know — and leave it at that. You have to be willing to invest time, energy, and resources to figure things out. Remember, these are the people who made your business strong. You trust their input for running the business, so why not engage with those who set you up for a lucrative exit in the first place?
2. Know your options for exiting the business
Exit planning for business owners is not a one-size-fits-all process. Rather than turning to conventional routes of exiting your businesses, such as selling through a broker or to a private equity buyer that calls you out of the blue, learn about the numerous other possibilities available. A more conventional sale approach, like working with a broker or banker, may sound like a sure thing on paper, but it can often rack up significant costs and lead to disappointing experiences when a sale falls through at the last minute. Many business owners have been through this, sometimes more than once.
What other options might be better suited for your company and its people? One could be an employee ownership trust (EOT). An EOT provides a way to get cash out and more incentivization for the employee-owners to ensure that the business succeeds. After all, it’s a joint deal. With an EOT, your interests as the selling business owner are aligned with your employees. They enjoy a direct, more immediate share of the profits. In turn, they protect the value-based legacy of your company. That’s the ownership flywheel effect of an EOT.
3. Understand your business’ readiness for your exit
You may be ready to start counting down the days left at your company. Is your company ready for you to leave the helm, though? Many businesses just aren’t in a good place for a major transition. Maybe their balance sheets aren’t healthy, or their financials aren’t organized. Consider resolving major obstacles to a smooth exit before any conversations with employees occur.
Not long ago, I talked with a legacy-minded owner who wanted to exit his company to his key employees — people who had been with him for 10 to 20 years each. In our initial consultation, I found out his brother owned half of the company and wasn’t willing to sign any loan documents because of a previous bad transaction experience. The owner didn’t see this as a roadblock to an exit until we talked about how much of an encumbrance it was to have a resistant co-owner. Ultimately, sorting out this issue was critical to starting the planning process and exiting without further obstacles down the line.
If you’re uncertain whether now is the right time to exit your business, an experienced partner can help. A partner who’s guided other companies through successful exit strategies — and exit strategy talks with employees at all levels — can be an asset. You’ll also have a navigator who’s been there and done that collaboratively with other business owners like you who are eager to exit the right way.
Your employees can’t read your mind and probably won’t have the same outlook on your exit that you do. To ensure you communicate your exit strategy appropriately, fold extra empathy and preparation into your planning.